Robert Reich’s Blind Spots: The Elephant In The Progressive Left’s Room

Authored by Jonathan Newman via The Mises Institute,

Robert Reich is on his fifth myth, but so far, he has just been recycling the same progressive talking points in each one. The overall message is that big corporations and the super wealthy wield too much political power and that they shape the law in their own favor, contributing to terrible economic inequality. For Reich, the U.S. economy is a zero-sum game and the people at the top have rigged it so they win and everybody else loses.

His solution is strong labor unions, high taxes on the rich, a high minimum wage, more trust-busting, and government wealth redistribution. He sees the economy through the lens of political power, and so the only solutions he can think of are ones that exploit the power of government to channel more of the fixed pie of wealth to a different group of people. Of course, many of his policy proposals would not even do that but would instead backfire and have unintended consequences that outweigh and confound the intended consequences.

Instead of going through all that, I just want to point out two blind spots.

Reich, along with other progressives like Elizabeth Warren, Bernie Sanders, and Alexandria Ocasio-Cortez, never address the root cause of what they correctly diagnose as excessive corporate power over politics. They also don’t see the elephant in the room: the Federal Reserve.

As I mentioned in my response to his second myth, the only reason big businesses reach for state power is because they know that state power can help them. If the government were constrained in such a way that no economic benefit could be gained by some special interest, then businesses wouldn’t seek it. The fact that businesses put millions of dollars into political candidates’ campaigns and into lobbying is explained by the fact that there are billions of dollars to be gained by having a politician in your pocket and laws crafted in your favor.

In Economic Policy: Thoughts for Today and Tomorrow, Ludwig von Mises explained what these “pressure groups” seek:

A pressure group is a group of people who want to attain for themselves a special privilege at the expense of the rest of the nation. This privilege may consist in a tariff on competing imports, it may consist in a subsidy, it may consist in laws that prevent other people from competing with the members of the pressure group. At any rate, it gives to the members of the pressure group a special position.

According to Mises, what gave rise to these special interest groups and their successes was interventionism. Interventionism is the idea that the government can and should control the market economy. It is the rejection of liberty and limited government.

Even without special interests, interventionism spirals into ever larger governments. For example, one price control is implemented, and not only does it not accomplish the intended goal, but it also brings about many unintended consequences. The government, acting under the framework of interventionism, then seeks to regulate and control those side effects. Those measures similarly fail, and before long the government has committed itself to a host of interventions and all the bureaucratic mess required to enforce them.

When interventionism is combined with pressure group politics, it inevitably leads to inflationism. Special interests vie for ever increasing government expenditures, but they also understand the unpopularity of taxation:

This system leads also to a constant increase of public expenditures, on the one hand, and makes it more difficult, on the other, to levy taxes. These pressure group representatives want many special privileges for their pressure groups, but they do not want to burden their supporters with a too-heavy tax load. … 

Pressure group politics explains why it is almost impossible for all governments to stop inflation. (Mises, Economic Policy: Thoughts for Today and Tomorrow)

Enter the Federal Reserve. The government cannot fund all the special projects with taxes alone, but inflation is a subtle way to spread the costs around.

The unevenness of the effects of monetary expansion (called “Cantillon effects”) explains why it is such a successful tool for a system based on interventionism and pressure group politics. Newly created dollars are spent on some special interest program, and this pulls resources away from where they would have been used in an undistorted market economy. The new money ripples out from its origin, from buyer to seller, causing prices to rise with each step. This process results in a permanent change in wealth and incomes, rewarding those closest to the money spigot.

Thus, instead of getting a tax bill for all the things special interest groups acquire from the government, ordinary citizens just see higher prices at the grocery store, the gas pump, and everywhere else. As we have seen, it’s easy for politicians to blame “corporate greed” or supply-chain factors for these higher prices. Not only does the blame-shifting parry citizens’ anger, but it also lays a foundation for future government interventions to address those “problems.”

The Fed, then, is a progressive blind spot for two reasons:

(1) it enables the government to give big corporations what they want, and

(2) it exacerbates the very economic inequality progressives claim they hate.

If the progressive left really wanted to curtail corporate influence over politics, ending the Fed would starve the corporate lobbyists out.

No corporation would spend millions of dollars lobbying for a subsidy or government contract that the government couldn’t afford. If you don’t like evil corporations eating at the government trough, then take away the trough.

And if the progressive left really wanted to moderate income and wealth inequality, the answer is the same: end the Fed.

The Cantillon effects of inflation may be summarized in progressive terms as “the rich get richer while the poor get poorer.”

The fact that progressives turn a blind eye to the Fed reveals either economic ignorance or political deceit. Maybe they don’t understand the economic effects of inflation.

If they do, then their whole program is an evil scheme to help themselves and their cronies get rich at the expense of the classes they purport to champion.